Old Machine was purchased in the past for $32000

The new machine costs $54 000 to purchase, $6 000 to install, has a five-year useful life, and will be depreciated over its lifespan. The replacement would require $6 000 additional working capital for the new machine. The projected profit before depreciation and taxes are provided in the following table:

Year	Existing Machine Projected profit before depreciation and taxation	New Machine Projected profit before depreciation and taxation
1 2 3 4 5	R14 000 R14 000 R14 000 R14 000 R14 000	R26 000 R26 000 R26 000 R26 000 R26 000

The existing machine can be sold today for $30 000 and has no salvage value five year from now. After five years, the new machine could be sold for $20 000, all before taxes. The company tax rate is 28%. Ignore capital gains tax.

Company Limiteds Weighted Average Cost of Capital (WACC) is 12%.

1. Calculate the Net Present Value (NPV) for the replacement decision.
   • Carrying amount (book value) of the old machine
   • After-tax proceeds from sale of old machine
   • Initial investment
   • Incremental cash flows
   • Terminal cash flows